S&P 500 Drops: Blame Mondays?

By Ben Levisohn

Stocks fell today despite the lack of anything significant that would drive down the prices of Netflix (NFLX), Alexion Pharmaceuticals (ALXN) and Facebook (FB), among other high fliers.

Reuters

The S&P 500 fell 0.5% to 1,857.44 as Netflix plunged, 6.7% to $378.90, Facebook declined 4.7% to $64.10 and Alexion Pharmaceuticals dropped 6.3% to $149.76 as biotech stocks continued to sell off. The Dow Jones Industrial Average, however, dropped just 0.2% to 16,276.69 thanks to its lack of stocks like Netflix, Facebook and Alexion Pharmaceuticals. The Dow was also helped by the strong performance of International Business Machines (IBM), which rose 0.9% to $188.25 and Procter & Gamble (PG), which advanced 1.8% to $79.30.

Taken in sum, the flash PMIs suggest some underlying slowing is occurring in the global factory sector, though perhaps not to the degree that we’d anticipated. Based on today’s flash releases, the global PMI is expected to decline 0.8pts to 52.5 in March. Output is prospectively down 0.5pts on a preliminary basis to 54.1. After holding at roughly the same level for four months, this would mark a low back to October. That said, the output PMI would still be consistent with 4.7% annualized global IP growth, nearly 1%-pt above the rate observed in January (3m saar) and 1.5%-pts higher than where we expect for February.

There’s even the possibility that the U.S. job market might be stronger than it looks, notes Citigroup’s Steven Englander, who points to an academic paper making the rounds. He writes:

Far from arguing that the unemployment rate understates the degree of slack in the labor market, the authors are arguing that the aggregate unemployment rate may overstate the degree of slack. The unemployment rate of those unemployed 26 weeks and less is almost back to where it was in 2008, and suggests a much quicker tightening in effective labor market conditions than Fed comments on the painfully slow recovery in the job market would suggest. Indeed both Krueger et al’s inflation equation in column 2 of their Table 1 and our re-estimation of it suggest that the current unemployment rate for those unemployed 26 weeks or less is almost certainly below the implied NAIRU for that measure. Estimating NAIRUs is a slippery matter, so you do not want to exaggerate the implications, but again it implies a need to re-examine the reserve army of the unemployed theme, and suggests considerable intellectual pushback against this view.

Can we blame today’s the weakness on Monday? Why not, as Bespoke Investment Group notes that markets have been, on average, down on the first day of the week:

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About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.